Black Hole of 5 Trillion Public Fund

The Supreme Public Prosecutors’ Office (SPPO) announced on July 22, 2002, that its special investigation team (SIT) charged 56 directors, executives and employees of companies and financial institutions in connection with misuse of public bailout funds, and put behind bars 27 of them. Among the imprisoned are former chairman of Bosung Group Kim Ho-joon and Choi Jong-wook, ex-chairman of SKM, who now face fraud and other charges. The SIT has inquired into the allegations about fraudulent application and obtaining of the public bailout funds.

The SPPO has also found evidence supporting the suspicion that another 10 companies engaged in fraudulent accounting practices and embezzlement of the public bailout. Accordingly, the SPPO prohibited the company employees from going overseas. To help these 10 business entities avoid bankruptcy, approximately 5 trillion won (approximately 4.3 billion dollar) of the public fund was poured into the banks which had lent money to them.

In addition, the SPPO obtained arrest warrants for 5 former corporate executives at large, who were suspected of illegally having amassed assets overseas, for example, by means of waiving to wire back into Korea the money their companies made abroad. The Office confiscated 37 billion won worth of the hidden illegal assets of 6 CEOs who reportedly managed their corporations to bankruptcy or insolvency.

The SPPO will focus on collecting on the public fund loaned to companies as well as monitoring and investigating the allegations regarding the misuse of the public bailout. It will conduct inquiry into the role of financial institutions in structuring and distributing the public funds as well.

Ex-chairman Kim Ho-joon is charged for manipulation of his company’s accounting (i.e. window dressing) and obtained huge amount of loans from banks. After he acquired Nara Financial Institute, for example, he overstated, via window dressing, his group’s sales volume by 41 billion won. Then, based on this, he borrowed almost 300 billion won from the Nara and 57 billion won from other banks.

The SPPO has secured evidence linking ex-chairman Kim, who is also one of the biggest share holder of the Nara, to embezzlement of 3 billion won out of the company’s fund. It is also looking into whether Kim bribed high-ranking bank and government officials in the process.

Former CEO of the Nara (Ahn Sang-tae) and executive director Chun Young-nam were also arrested charged with embezzlement under the Act of Special Economic Crime. Allegedly, they illegally loaned money to Bosung Group, which resumed business operation in May of 1998, and thereby had their company sustain more bad debts.

The government had poured almost three trillion won into the Nara over two occasions.

Choi, former chairman of SKM, is also charged with cheating banks out of 130 billion won with fraudulent accounting practices. For example, Choi, along with former SKM’s CEO Kim Nyun-tae, intentionally omitted booking the losses from the exchange rate on the balance sheet in 1997. This way, they could cheat banks.

Additionally, Choi is suspected of using fraudulent financial devices to support Dongsan C&G that he had acquired in 1993 once its financial status got worse. In that manner, Choi allegedly poured approximately 105 billion won into Dongsan C&G.

Wi-Yong Jung viyonz@donga.com